The Kerala High Court, granting an interim relief to petitioner-exporter, stayed the recovery of refunded Integrated Goods and Services Tax under Rule 96(10) of Central Goods and Service Tax Rules, 2017.
By the writ petition, Petitioner challenged the constitutional validity of Rule 96(10) of the Central Goods and Service Tax Rules, 2017 (CGST Rules) being ultra vires of Section 16(3) of the Integrated Goods and Service Act, 2017 (IGST Act) and violative of Article 14 and Article 19 (1)(g) of the Constitution of India.
The petitioner, Bismi Cashew Company, was represented by Advocates M P Shameem Ahamed & Daniya Rasheed Palliyalil while the Deputy Solicitor General of India took notice for the 1st respondent, Union of India, Government Pleader for the State of Kerala and Sreelal N Warrier for the 3rd respondent, Assistant Commissioner, Central Tax and Central Excise, Kollam.
The Rule 19(10) of CGST Rules, 2017 as amended by Notification No. 54/2018 – Central Tax was contested to be ultra vires of Section 16(3)(b) of the Integrated Goods and Services Tax Act, 2017, and the Constitution of India, being arbitrary and unreasonable.
A Challenge was also made to the recovery order passed by the Assistant Commissioner of Central Tax and Central Excise, by which refund of Integrated taxes paid on zero rated supply, which were claimed by the Petitioner and which was sanctioned and received by the Petitioner is ordered to be recovered under the provisions of Section 74(1) of the Goods and Services Tax Act, by relying upon the provisions of Rule 96(10) of Central Goods and Services Tax Rules.
It was submitted that, as per Section 16(3), as it stood prior to its amendment made by Finance Act, 2021 w.e.f 01.10.2023, a registered person who is making a Zero Rated Supply was given the 2 options, i.e (a) either to make such supplies without payment of IGST under bond or Letter of Undertaking and claim refund of the unutilized Input Tax Credit or (b) making zero rated supply on payment of Integrated Tax and then claim refund of such Integrated Taxes paid.
The use of the expression ‘such tax’ would only mean that the refund under Section 16 (3) of IGST Act is the refund of Integrated Tax paid on such supplies. Further, such refund has to be claimed in accordance with provisions of Section 54 of the CGST Act and the Rules made thereunder.
The Petitioner submitted that, even though neither Section 16(3) of Integrated Goods and Services Tax Act nor Section 54 of the Central Goods and Services Tax Act has granted any rule making power to the Central Government to prescribe any conditions for claiming refund of Integrated Tax paid on exports, the Central Government had enacted clause (10) to Rule 96 of CGST Rules by which, certain conditions have been prescribed for claiming refund in cases covered under Section 16(3)(b) of IGST Act.
By virtue of Rule 96 (10) of CGST Rules, 2017 as it stands amended by Notification No. 54/2018 – Central Tax dated 09.10.2018, a condition has been prescribed for claiming Integrated Tax paid on the exports as provided under Sec 16 (3) of IGST Act, 2017, to the effect that the exporter should not have availed any of the notifications mentioned in Rule 96 (10), which includes the benefit of notification no.79/2017 – Customs dated 13.10.2017 (Notification providing for exemption from levy of Basic Customs Duty and Integrated Tax in respect of goods which are imported against Advance Authorisation).
In other words, if the importer has availed exemption on the payment Integrated Tax, which is otherwise leviable at the time of import, on the basis of Advanced Authorization, such importer cannot claim refund of the integrated tax paid by him on his exports.
The Petitioner further submitted that, Section 16 (3) does not lay down any condition and it straight away provides for refund of the integrated tax paid on the exports. However contrary to what has been provided in the parent Act, the Rules have introduced conditions on its own without any authority of law and therefore the provisions of Rule 96(10), to the extent it says that refund of Integrated Tax paid on the export will be denied if the exporter had claimed the exemption from the levy of Integrated tax on the strength of Notification No.79/2017 dated 13.10.2017 is clearly without necessary legislative power given under the parent Act.
The Petitioner further added that, “It is totally irrelevant or immaterial as to whether the exporter had claimed exemption on the integrated tax at the time of import, since ultimately the entire tax on the export supply has been paid by the exporter at the time of export and it is the said tax, which is otherwise not payable, which is given as refund to the exporter.”
The Petitioner submits that, the refund under Section 16 (3) of IGST Act is not the refund of the Input Tax Credit which is accrued and unutilized, but it is the refund of the taxes which are already paid on the export by exercising the option under clause (b) of Section 16 (3) of the IGST Act.
“Therefore, when the parent Act unequivocally and unconditionally provides for refund of the taxes paid on exports by way of simplified procedure, the Rules cannot introduce any conditions on its own which takes away such statutory rights and any such conditions so imposed will be only ultra vires the parent Act and the same also will be unreasonable and unjust and cannot stand test of constitutionality. Rule 96 (10) of CGST Rules 2017, is therefore liable to be struck down”, the petitioner added.
Thus, Rule 96 (10) of CGST Rules, 2017 is ultra vires of Sec 16 (3) (b) of IGST Act, the petitioner contended.
It was further submitted by the counsel for the petitioner, that the Kerala Court has already admitted similar writ petitions and granted interim orders staying the recovery of refund amounts on the basis of Rule 96 (10) of the CGST Rules 2017.
“Section 16(3)(b) of IGST Act does not lay down any condition and it straight away provides for refund of the Integrated Tax paid on Zero Rated Supplies. In fact, Section 16(3)(b) does not even give any rule making powers to impose any conditions”, the petitioner, represented by M.P. Shameem Ahamed & Daniya Rasheed Palliyalil, Advocates submitted.
Arguing that “Rule making authority cannot introduce any conditions on its own which is not authorized by the Parent Act”, the petitioner counsel urged the Kerala High Court that the Order-in-original based on the Provisions of Rule 96 (10) of CGST Rules, 2017 is not sustainable and needs to be quashed.
In result, the Single Bench of Kerala High Court, on a consideration of the pleadings and materials on record, and taking note of the fact that this Court has passed interim orders in identical matters, I am of the view that the petitioner is entitled to the benefit of a similar order.
Hence, the bench of Justice C S Dias, stayed further proceedings pursuant to the impugned order, for a period of four months.
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